How the Edgewood Bakery relationship with Jaguars owner Shad Khan went stale

Drew Dixon

Thursday

Jan 29, 2015 at 4:24 PM

Carol Rykalsky fought back tears several times as she talked about the dream of running Edgewood Bakery in Jacksonville's Murray Hill neighborhood.

Less than a year after she and her husband, Tom, bought the bakery, which has been operating since 1947, with the help of Jacksonville Jaguars owner Shad Khan, Carol Rykalsky said the experience has turned into a nightmare. At the bakery Thursday on Edgewood Avenue, the eve of a court hearing that could decide the future of the business and who runs it, Carol Rykalsky said her future appears painful.

"Do they want us to give away everything that we've ever worked for? Just go away and never care about it ever again?" Carol Rykalsky said in a meeting room at the bakery. "Just walk away? Is that what they want us to do?

"To not talk about it and say that it was wonderful? We're not doing that," she said as her husband tried to comfort her.

She said the strain has been building day by day since she, her husband and their partner Mike Zimmerman saw their rapport with Khan and his investment firm Stache Investments sour last fall, barely four months after the bakery was purchased. Since then, Khan filed a lawsuit seeking majority ownership of the bakery, unleashing a testy public fight.

After two months of both sides making their cases for why they should have control of the business, Circuit Judge James Daniel issued an opinion Jan. 23 saying he saw Khan and Stache as the majority owner. The Rykalskys say they'll seek a jury trial in the case.

Khan filed the lawsuit in early December, contending that Stache Investments' $800,000 seed money for the Rykalskys to buy the bakery in June as part of a startup venture constituted majority ownership. He asked the court to grant Stache control of the business. The suit says the Rykalskys and Zimmerman, under U.S. Culinary & Beverage, have hurt the business through waste.

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A key claim in the original lawsuit was that if the court didn't issue a ruling by the end of 2014, the business would cease to exist.

Tom Rykalsky said that claim both bothers him and makes him chuckle as the business continues to function fine with orders continually being filled.

In the interim, Daniel could decide Friday to appoint a "receiver" to handle the company's finances while both sides continue with the lawsuit.

HOW THE RELATIONSHIP WENT SOUR

The Stache lawsuit describes a rapidly deteriorating relationship involving debts, personnel and what perhaps was a final straw.

"Several times since Rykalsky started operating Edgewood Bakery, vendors have placed Edgewood Bakery on a credit hold," the lawsuit claims, specifically citing a $12,301 lien filed by Electrical Contracting for unpaid work. That bill "is more than 90 days old and there is no dispute on the amount. Other contractors have similarly not been paid and are threatening to file liens against the bakery."

Stache executives apparently were angered when, according to the lawsuit, the Rykalskys terminated their lead baker, Gary Polletta, who also was the son of the previous Edgewood Bakery owner and whose prior knowledge of the business presumably was valuable to Stache.

"Stache intended that Mr. Polletta would continue his employment after the sale," the lawsuit asserts, as "nominal general manager." The suit claims that Polletta's advice was routinely ignored by the Rykalskys and "they ultimately fired Mr. Polletta - none of which they had the authority to do."

The Polletta firing is part of Stache's claim that the Rykalskys damaged the business' reputation, because, the suit implies, the Rykalskys basically didn't know what they were doing.

Ultimately, on Oct. 15 and without warning to Stache, the Rykalskys removed Jim Zsebok, Stache's representative in the deal, as "corporate manager" and "Rykalsky appointed himself as corporate manager of U.S. Culinary & Beverage."

As tensions mounted, in November the Rykalskys changed the bakery locks. On Nov. 21, the lawsuit claims, they refused Stache access to the bakery to inspect it. Shortly after that, the lawsuit was filed.

There are two sides to this story and the Rykalskys say the disputes are intertwined. Tom Rykalsky described it this way:

The locks were changed for security after Polletta was fired, not to keep Stache out. Stache never asked for keys and Khan never accepted invitations to come discuss the disputes.

Electrical Contracting was paid about $8,000 and the remaining $4,000 in dispute was not paid because the Rykalskys were unsatisfied with lighting work in the front of the bakery. Once Zsebok left, Stache cut off the money flow and the Rykalskys fell behind on payments to other vendors. The Rykalskys are working with those vendors to set up payment plans.

The disputes with Stache have been difficult to resolve because little is in writing.

"That's the problem: We don't have a contract," Tom Rykalsky said.

LIKE BAKED GOODS, EMOTIONS RISE AND FALL

That's the hardest part, Tom Rykalsky said. What started as a partnership with Stache after the inaugural 2013 One Spark crowdfunding festival has sent the Rykalskys on an emotional roller coaster that now promises only uncertainty.

"The biggest frustration to me on a day-to-day basis is that we don't know what they want," Tom Rykalsky said. "We've offered to buy them out. We've offered for them to buy us out. We've offered multiple different options in multiple denominations in multiple different ways and nothing's acceptable."

The uncertainty at the bakery is felt by several of the remaining 40 employees. Erika Maya, head wedding cake designer at Edgewood Bakery and an employee there since 2004, said she is trying to remain neutral. But she acknowledged the mounting tension.

"It's been real hard working with a lot of anxiety," Maya said Thursday. "There's been some challenges, but the Rykalskys have been resourceful."

Stache Investments officials sent termination notices to most of the employees last year. But the Rykalskys and their workers stayed at the business and kept producing baked goods, which led to the lawsuit.

"We're on edge. Everybody has anxiety. It's taken a toll," Maya said.

SCRAMBLED EGGS AND VEGETARIAN MUFFINS

At midday Thursday, customers packed the bakery's restaurant area. Some devoured eggs ordered from the menu. Others stopped in to pick up some doughnuts.

Eddie Diamond Jr. said he continues to support the bakery and the Rykalskys. As he walked out of the business with a half dozen doughnuts, he said he doesn't like Khan's approach in this dispute.

"It appears the wealthy are greedy and they want more," Diamond said. "I came in here because I heard a lot about the controversy."

As Tom Rykalsky reminisced about the beginnings of his association with Khan and Stache Investments, who expressed interest and support for his vegetarian muffin products, he acknowledged it prompted a surge in pride, especially when he learned Stache would help him buy Edgewood Bakery.

"That was probably one of the highest highs in business I've ever had," he said.

But when he learned Khan and Stache were changing their approach and were seeking majority ownership of the business, "that was probably one of the scariest days in business of my life."

Ultimately, Tom Rykalsky said he thought he understood the business of Edgewood Bakery and dealing with Shad Khan. But he now realizes he wasn't fully prepared for what was coming.

"I was naïve, yes," he said. "I never set up a business, per se, from the beginning. We trusted Stache that they would do the right thing and help us guide us through this and teach us."

"How could we have foreseen this?" Carol Rykalsky asked.

Drew Dixon: (904) 359-4098

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